Mexico last year took a gamble that the high oil prices seen around the middle of the year wouldn’t last: it hedged all of its 2009 oil exports at a cost of $1.5bn. The move paid off in spades, earning the country a $5bn windfall.
Agustín Carstens, Mexico’s finance minister, was dubbed ‘the world’s most successful, but worst-paid oil trader’ when last year’s hedge reaped $5bn.
Now the country has taken out a similar insurance policy against crude prices falling below $57 a barrel. The move is a sign that Mexico isn’t counting on today’s relatively high levels of market exuberance to last – and many pundits believe that current crude price levels are unjustified.
But Carstens insists the plan is not to reap another windfall – but only to act as insurance, saying “if we don’t collect any resources from this transaction, it’s OK with us.”
Nevertheless other state-controlled oil producers are unlikely to do the same. Ecuador lost almost $20m to Goldman Sachs trying to hedge its commodities exports in 1993. And not only is the political will not there – many countries with state-controlled producers are wary of such experimentation with derivatives, as economist and oil-watcher Philip Verleger wrote in a 1994 book:
Officials of several state oil companies have advised the author that they refuse to enter into any long-term contracts because to do so “would impose a commercial decision on a future government administration” while managers at other state enterprises refuse to act out of fear of “giving up the commercial upside”.
For Opec members, presumably, there’s even less incentive.
Mexico to enjoy $8bn windfall from oil bet (FT, 07/09/09)
The world’s most successful, but worst paid oil manager? (FT Energy Source, 09/08/09)
Adios, Cantarell (FT Energy Source, 20/02/09)
Clarion call from Cantarell (Gregor.us, 23/08/09)